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University of Wales Swansea LABOUR FORCE SURVEY USER GROUP MEETING ROYAL STATISTICAL SOCIETY London 26 November 2004 INTRODUCTION Britains Ethnic Minorities face two major problems in the labour market. to find employment having found employment their earnings tend to be lower compared with similar White individuals Three major factors may explain the above differences Ethnic Minorities may have lower levels of characteristics, such as schooling that increase earnings and the probability of finding employment For any given characteristic earnings and the probability of employment may be lower for Ethnic Minorities – this will be referred to as discrimination Thirdly, whilst all Ethnic Minority groups may have experienced discrimination, their response to it may have been different

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University of Wales Swansea Earlier work by the authors found that coefficient differences played the more important role in explaining both wage and employment differentials. Tony Blair in a recent government report (Cabinet Office 2003), however, has made it an objective to eliminate discrimination, though it is nearly 40 years since the first Race Relations Act, it is clear that racial discrimination in the labour market still persists. He set the goal, that in ten years time, ethnic minority groups should no longer face disproportionate barriers to accessing and realising opportunities for achievement in the labour market. Estimating the level of discrimination against non-white ethnic minorities in Britain has been complicated by the fact that many are immigrants who may be disadvantaged by poor command of language (Leslie and Lindley, 2001), overseas schooling (Blackaby et. al, 2002), being less familiar with customs and having poorer access to jobs search networks (Frijters et. al, 2003). The implications being that as the proportion of non-white British born ethnic minorities increases, so the position of ethnic minorities should improve.

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University of Wales Swansea An offsetting factor, however, is that as a result of discrimination or choice this group may adopt a taste for isolation (Blackaby et. al, 1999) or oppositional identities (Battu et. al, 2003). As a result measuring discrimination can be likened to the quest for the Holy Grail. To attempt to get a handle on the size of discrimination, male British born ethnic minorities are considered. METHODOLOGY As is conventional in research on wage discrimination, a human capital approach is adopted and separate earnings functions are estimated for each ethnic group Employment and wage differences are then decomposed into the amount due to characteristic differences and how much is due to coefficient differences – the latter being attributed to discrimination.

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University of Wales Swansea We adopt the approach of Neumark (1988) and Oaxaca and Ransom (1994) which relates more closely to the theoretical literature of Becker (1957) and Arrow (1972) than earlier decompositions. (1) (2) (3) (4)

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University of Wales Swansea DATA The data are taken from the Office of National Statistics Labour Force Survey (LFS). earnings information has been collected since 1992Q4. In this paper data from 1993Q4 to 2000Q4 are used, this results in sample of 1,463 non-white British born ethnic minorities. sample is restricted to economically active male employees. The data reveal wide diversity in the data across ethnic groups 18.7 percentage point employment differential between whites and ethnic minorities 11.5% nominal earnings differential between whites and ethnic minorities ethnic groups are overly represented in the South-East and London where earnings are higher and unemployment has been lower. ethnic minorities are younger and have higher qualifications. diversity also in industrial structure, marital status, job tenure, plant size and whether one works in the public sector.

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University of Wales Swansea PROBIT RESULTS A number of personal characteristics are found to be important in predicting unemployment probability of unemployment is clearly related to an individuals age being higher for the young and old. the presence of three or more children also increases the probability of unemployment of whites. This is usually attributed to the work disincentive effects induced by the benefit system that links benefit to family size. differences are observed in a number of other variables PROBIT DECOMPOSITION To complement the familiar decomposition approach matched samples (by age and region) are used to compare groups using the propensity score approach first discussed by Rubin and Rosenbaum (1983). A matched sub-sample of whites is generated – that satisfies the balancing condition tests outlined by Becker and Ichino (2002)

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University of Wales Swansea To analyse whether it is differences in mean characteristics or differences in rewards to those characteristics that determine differences in employment across ethnic groups, ethnic employment, decompositions are presented in Table 1. Employment differential is 18.7%, characteristics explain approximately 1/3 of the employment gap The finding is consistent with research undertaken by Commission for Racial Equality when submitting fabricated CVs for jobs which differed only be ethnic background. Pakistanis are the most disadvantaged group 24.6% points lower employment rate Majority of difference attributed to coefficient differences As well as discrimination this finding is consistent with this group choosing to distance itself from domestic culture even when they know this may well reduce their chances of employment. Light can be cast on this issue by comparing Indians with Pakistanis. Characteristics explain nearly three-quarters of the employment difference, however, 5.4% points remains unexplained This may reflect a taste for isolation

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University of Wales Swansea DECOMPOSITIONS To analyse whether it is differences in mean characteristics or differences in rewards to these characteristics that determine differences in earnings across ethnic groups, ethnic earnings decompositions are presented in Table 2. wage differential is 11.5%, characteristics now explain 60% of the wage differential concentration of ethnic minorities in higher earnings regions would suggest their earnings should be 7% higher than whites. largest raw earnings difference (16%) is found between whites and blacks the earnings gap for Indians and Pakistanis is much smaller and even marginally favours Indians characteristics favour Asian groups with qualifications in particular suggesting earnings should be higher Indians/Pakistanis decomposition reveals two thirds of 19% earnings gap explained by characteristics – 6.6% coefficient effect consistent with greater taste for isolation and oppositional identities

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University of Wales Swansea CONCLUSION Findings support the work of Borjas (1994) who stated for the US that ethnicity matters and it matters for a very long time. ethnic differences in the labour market cannot be explained solely as a characteristics problem Such generalizations about the attributes of the ethnic minority populations can reinforce stereotyping, which may result in the populations being excluded from the most remunerative occupations and excuse governments from taking appropriate policy initiatives in this area. The labour market in Britain has performed well since 1993 (unemployment fallen from 10.6% to 5.0%).

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University of Wales Swansea Britains ethnic minorities should have benefited in two ways: increasing proportion of British born who ought to have advantages over immigrants ethnic disadvantage typically hypercyclical with disadvantage falling disproportionately in a buoyant labour market For specific British born ethnic groups and we highlight blacks and Pakistanis, employment and earnings disadvantage remains particularly severe. This may partly reflect a taste for isolation, rather than just the consequence of discrimination. The ten-year objective of estimating labour market differences will be extremely challenging on the basis of these findings and may require additional discrimination legislation as well as policies that encourage certain ethnic groups to engage more fully with the dominant culture.